NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Labor Wedge: MRS vs. MPN

Loukas Karabarbounis

NBER Working Paper No. 19015
Issued in May 2013
NBER Program(s):   EFG   ME

Do fluctuations of the labor wedge, defined as the gap between the firm's marginal product of labor (MPN) and the household's marginal rate of substitution (MRS), reflect fluctuations of the gap between the MPN and the real wage or fluctuations of the gap between the real wage and the MRS? For many countries and most forcefully for the United States, fluctuations of the labor wedge predominantly reflect fluctuations of the gap between the real wage and the MRS. As a result, business cycle theories of the labor wedge should primarily focus on improving the household side of the labor market. Explanations of the labor wedge based on departures of the representative firm's MPN from the real wage are rejected by the data because the labor share of income is not strongly procyclical.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

This paper was revised on July 19, 2013

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Loukas Karabarbounis, 2014. "The Labor Wedge: MRS vs. MPN," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 206-223, April.

Users who downloaded this paper also downloaded these:
Ball, Leigh, and Loungani w18668 Okun's Law: Fit at Fifty?
Karabarbounis and Neiman w19136 The Global Decline of the Labor Share
Farmer w18284 The Evolution of Endogenous Business Cycles
Hall and Sargent w19008 Fiscal Discriminations in Three Wars
Beaudry, Green, and Sand w18901 The Great Reversal in the Demand for Skill and Cognitive Tasks
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us